Dellarte Corporation has two major divisions-Agricultural Products and Industrial Products.It provides the following information for the year. $$\begin{array} { | l | r | r | }
\hline & \text { Agriculture Division } & \text { Industrial Division } \
\hline \text { Net sales } & \$ 150,000 & \$ 1,000,000 \
\hline \text { Operating income } & \$ 47,000 & \$ 235,000 \
\hline \text { Average assets } & \$ 290,000 & \$ 5,580,000 \
\hline \text { Target rate of return } & 13,0 \% & 10.0 \% \
\hline
\end{array}$$ Calculate the residual income for the Agriculture Division.

Question

Dellarte Corporation has two major divisions-Agricultural Products and Industrial Products.It provides the following information for the year. $$\begin{array} { | l | r | r | } 
\hline & \text { Agriculture Division } & \text { Industrial Division } \
\hline \text { Net sales } & \$ 150,000 & \$ 1,000,000 \
\hline \text { Operating income } & \$ 47,000 & \$ 235,000 \
\hline \text { Average assets } & \$ 290,000 & \$ 5,580,000 \
\hline \text { Target rate of return } & 13,0 \% & 10.0 \% \
\hline
\end{array}$$ Calculate the residual income for the Agriculture Division.

Quizplus · Accepted Answer

Residual income is calculated as Operating Income minus the product of Average Assets and Target Rate of Return. For the Agriculture Division: $47,000 - ($290,000 * 13%) = $47,000 - $37,700 = $9,300.

Dellarte Corporation Has Two Major Divisions-Agricultural Products and Industrial Products